Thursday, May 29, 2008

Inflation Deflation Chaotic Mix

Good piece by Christopher Laird on the ongoing inflation/deflation battle.

I found this bit particularly interesting:

There is a report that 25% of the world wheat crop is at serious risk of a new virulent wheat rust that chokes the wheat before it comes to head. (Mid-East to Asia). The US has its own concerns over a wheat rust spreading through the Mid West. So, what are the chances of a record grain harvest in 08?

Just to give an idea of the concern about food, China just spent a $400 a ton premium on fertilizer that used to cost $170 a ton Jan 08. It was a huge order. Reason? They are afraid that if they don’t have great harvests this year, tens of millions may starve in 09. It is a grim situation. Other poor countries in Africa, Asia, South America, are also very concerned about grain shortages.

Martians on Oil

Jim Rogers Video: Why the dollar is doomed

Video link

  • Invest in Asia/China
  • Dollar sucker's rally will continue, but he doesn't want to own a single dollar this time next year
  • Surprise for oil will be how high the price goes, and how long it stays high
  • Believes American Central Bank will disappear within the next decade or two

Wednesday, May 28, 2008

Silver Tanks - But Why?

There is a conspiracy theory that 8 large traders, in large part, control and manipulate much of the gold and silver markets. The tale goes that these traders aim to keep gold/silver prices low by manipulating the market with their massive short positions.

I never really bought into this theory - until yesterday. With the rallies in gold and silver suddenly reversing course (especially silver, which was down nearly $1 yesterday), it sure made me wonder, especially with all signs heading into the week pointing up.

Here's some interesting food for thought on the silver market by Ted Butler.

I'm still holding my position. It sucks to be down big on this position, but as a longer term trader, I can't really sell unless it breaks below 17. My position is probably too big - I should have bought a mini, so that I could be adding to my position now after this firesale. But hey, everything makes sense in hindsight.

Monday, May 26, 2008

Weekly Positions Update - 5/25/08

I hope you're enjoying Memorial Day weekend. I just rolled back into town a few hours ago from a short weekend trip to Las Vegas. My wife and I stayed at Imperial Palace the first night, and Trump International the second - talk about going from the outhouse to the penthouse! The new Trump hotel is fantastic, and a tip if you're heading their soon - check out the rates on, because I don't think everyone knows it's open yet. We landed our room for $199 using a few days beforehand - same price we paid to stay at the Imperial Dump the night before!

Nice to see some of the commodity markets acting "right" again. The meats are looking good, save for Pork Bellies, and silver looks poised for a rocket launch. I've got my stop for Pork Bellies waiting around 75...I may have been too soon with this contract, as there may not yet be a supply problem in August. I'm happy about the January '09 Feeder contracts, and will be looking to aggressively add on more strength.

Open Positions
Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss
05/21/08 Long 1 JAN 09 Feeder Cattle

113.950 114.900 $475.00
05/21/08 Long 1 JAN 09 Feeder Cattle

114.000 114.900 $450.00
05/08/08 Long 1 OCT 08 Live Cattle

105.350 107.550 $880.00
05/09/08 Long 1 OCT 08 Live Cattle

106.700 107.550 $340.00
05/14/08 Long 1 AUG 08 Pork Bellies

82.950 76.500 ($2,580.00)
05/21/08 Long 1 JUN 08 Swiss Franc

0.974100 0.9777 $450.00
05/21/08 Long 1 SEP 08 Silver (eCBOT)

1813.9 1838.8 $1,245.00
Net Profit/Loss On Open Positions: $1,260.00

Account Balances
Current Cash Balance $104,119.07
Open Trade Equity $1,260.00
Total Equity $105,379.07
Long Option Value $0.00
Short Option Value $0.00
Net Liquidating Value $105,379.07

Cashed out: $15,000.00
Total value: $120,379.07

Weekly return: 2.8%
YTD return: 54.9%

***BTW, I usually "cash out" money just to pay for taxes, rent, and cheap beer. So total value is all pre-tax. I had to take out some more cash to pay my Q2 estimated tax payments this week.

Thursday, May 22, 2008

A (Short Term) Bubble in Oil?

Let's look at a few opinions I've heard over the last couple of days:

  • Chuck Butler at the Daily Pfennig believes at least 20% of the current price is speculation driven

  • T. Boone Pickens (video posted yesterday) says demand is 87 million barrels per day, while the world can only produce 85 million of barrels per day - something has to give, and that's the price, he says

What does everyone think? Does anyone have the onions to short oil right now? Or is that like shorting Yahoo in 1998?

Wednesday, May 21, 2008

Commodity Market Thoughts

  • Cattle's looking good - I'm keeping an eye on the Feeder market also. Wish I still had all my Live Cattle contracts, but oh well - looking to add on a new breakout.

  • Pork bellies are not looking good - same article linked above mentions too much supply on the market.

  • Quite a breakout by gold and silver over the past few days. Silver looks particularly intriguing, as it has a compelling supply/demand story also. I believe both are sitting right around their 50-day moving averages.

  • All the commodity currencies are rallying quite strong. Will be interesting to see if the Aussie dollar can stay strong if the market turns down. I personally think there will be some short term panic selling, which will also drive the Japanese Yen and the Swiss Franc up.

  • Sugar, as our buddy Toby said once, is acting like a giant turd. Too much supply on the market, it appears. Long term it's going much higher - until then, probably best to wait.

  • Coffee is looking strong also. I'm going to sit back and wait on this one - coffee head fakes more often than #24.

CNBC: Boone Pickens on Oil

BP Capital CEO Boone Pickens thinks we'll see $150 oil before the end of the year. He also bought 10 million shares of Yahoo, following his friend Carl Icahn into the deal.

He also believes demand destruction in oil due the US slowdown is a non-issue, as the rest of the world is compensating for any drop in US demand. Boone also made an interesting point about oil and gas being subsidized in many parts of the world, and thus not as sensitive to price increases.

CNBC Video

Tuesday, May 20, 2008

Falling VIX Bearish for Market

Jeff Clark from Growth Stock Wire believes we may be at an inflection point for a downturn in the market. He sites a falling VIX, CNBC exuberance, a falling put/call ratio, and underperforming shares of Merrill Lynch as potential caution signs.

Monday, May 19, 2008

Weekly Positions Update - 5/18/08

Hell, I really took it on the chin last week, particularly toward the end of the week. I wasn't sure what to do - so I figured when in doubt, get out! Nothing seemed to be acting well - corn especially appears to be a disappointment. I'd rather sit on the sidelines and reevaluate, rather than do anything stupid based on emotions.

I'm comfortable enough with these position sizes to be able to withstand some volatility. I still believe in the bullish case for meats, and want to make sure I'm around and in the game for the upcoming rally.

Open Positions
Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss
04/30/08 Long 1 OCT 08 Live Cattle 104.350 105.550 $480.00
05/08/08 Long 1 OCT 08 Live Cattle 105.350 105.550 $80.00
05/09/08 Long 1 OCT 08 Live Cattle 106.700 105.550 ($460.00)
05/14/08 Long 1 AUG 08 Pork Bellies 82.950 78.350 ($1,840.00)
Net Profit/Loss On Open Positions: ($1,740.00)

Account Balances
Current Cash Balance $109,123.09
Open Trade Equity ($1,740.00)
Total Equity $107,383.09
Long Option Value $0.00
Short Option Value $0.00
Net Liquidating Value $107,383.09

Cashed out: $10,000.00
Total value: $117,383.09

Weekly return: -9.6%
YTD return: 50.9%

***BTW, I usually "cash out" money just to pay taxes. So total value is all pre-tax. Going forward, I'll be cashing out to pay for rent and beer also.

Thursday, May 15, 2008

Kerr Trading Blog

Kevin Kerr recently started up a blog on his trading site. I've added a link here on the left.

Crappy day today, winding down on a crappy week. Corn has been getting absolutely whacked on the good weather reports - I'm still in the trade, with a stop down at 578.

Natural gas has been doing what nat gas does - bouncing all over the freaking map. The short term and long term trends are both up, but trading NG can really drive you nuts.

And the icing on the cake for me was a sudden drop in pork bellies - in a matter of minutes, it went from making new highs and pushing the 84 mark, to a quick cliff drop down to 80.50. We'll continue to watch the meats closely - I believe they had turned the corner and are posed to breakout, but only time will tell.

Tuesday, May 13, 2008

Jim Rogers: If gold goes down some more, I'll buy some more

Full article, with commentary on Jim Rogers' current takes.
  • If base metals continue to consolidate, he plans to buy more
  • Rice prices must go much higher to cause supply to rise
  • He expects the dollar rally to continue, because everyone is bearish (including him)
  • He holds the currencies of commodity producing countries, such as Canada, Australia, and New Zealand
  • He's still short US investment banks

Corn down on impressive planting progress, but still lagging behind

Corn futures have been whacked this week. Dry weather over the weekend helped farmers make impressive gains, but plantings are still behind.

This may be a nice buying opportunity. All the "on the ground" intelligence I've seen still indicates this crop could be in serious trouble. These could be some deceiving positive numbers that are driving down the futures prices.

Palladium Ready to Run Again

This from Jeff Clark at the Growth Stock Wire. I read this guy regularly and he tends to be spot on with his trading calls, so definitely worth paying attention to.

Futures traders going long US Dollar

Chuck Butler mentioned yesterday in the Daily Pfennig that, for the first time since 2005, Futures Traders are going long the US Dollar. 2005, you'll remember, was the year of the dollar's counter rally in this downtrend.

Nothing goes straight up or down, so we'll see if this is the start of some sort of dead cat bounce for the US dollar. Be careful and consider this when making your trades.

I should follow some of my own advice - I snuck back into the Japanese Yen Sunday night, and snuck back out Monday morning, taking my usual haircut on the Yen. It's getting to be a bit of a joke, even around here, as I was walking around the house cursing the Yen - even my wife yelled at me "Stop trading the Yen, all you do is lose money! Stick to commodities!"

Sunday, May 11, 2008

Who’ll be next to the party at the commodity rager?

Note: This article was also published on Seeking Alpha.

Bull markets, like college fraternity parties, usually begin in relatively quiet fashion – with small participation, initial awkwardness, and some doubters. In both cases, things have a tendency to quickly kick into gear when they are driven by supply and demand fundamentals – be it alcohol, sorority women, tech stock IPO’s, or soybeans. Soon enough, the unlucky party hosts have a real rager on their hands, with better judgment being tossed out the window with the empty beer cans.

Energy (most notably, oil) tapped the first keg and kicked off the current commodity bull market. True to form, the acting University Dean, our United States Government, stepped in with a plan to “do something” and quell the drunken party revelers. And in the process, not only did their bone-headed plan not make a dent in the original energy party, but it kicked off another megabash next door – this one in the agricultural markets.

The government’s wise idea to divert our food supply into the fuzzy science that is corn-based ethanol lit a fire under the grain markets like a Flaming Dr. Pepper. And so we have $6 corn, $13 soybeans, and a limit on the rice available to Costco shoppers.

The super seniors at this commodity bash realize it has some room to run. Historically, the average commodity bull market lasts 17 years – better make another beer run soon.

So who’s likely to crash the party next? Well, the softs, such as coffee, cotton, and sugar, still haven’t made much of a showing. And judging by their run-ups in previous bull markets, we know these guys can party. Keep an eye out for them.

But my money is on the meat heads. High grain prices must force cattle and hog prices higher. In fact, farmers are slaughtering their herds early and sending their meat to market now, rather than fattening up their herds on sky-high grain prices. This has temporarily pushed down prices, but is setting the stage for a dramatic upcoming shortfall in supply – Don Coxe alludes to this in an interview on BNN. Also check out the CEO of Tyson Foods on CNBC saying that their meat prices must rise, as 60% of the cost of raising an animal is feed.

How should you play this? As a consumer, you may want to load up your freezer with some cheap meat. As an investor, the most direct way to play this trend is by buying longer-dated futures in the meat markets. In lieu of a futures account, you could also consider the ETF COW, which holds a mixture of live cattle and lean hog contracts.

But you’d better act soon to lock-up your late night snack. Live cattle futures have broken out recently –and meat may be off to the races already.

Related resources:
· Blogging Stocks – COW: Resources expert turns bullish on meat
· DailyWealth – How to buy high-profit corn
· Growth Stock Wire - A Commodity the Bull Market Forgot

Friday, May 09, 2008

Financial Times: IMF warns on global inflation

In an indication the commodities boom may not be the bubble imagined, Mr Lipsky said the forces pushing prices up “appear to be fundamental in nature” – and these were being amplified by lower US interest rates and the dollar’s decline.

Full article

Weekly Positions Update - 5/11/08

Open Positions
Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss
04/15/08 Long 2 JUL 08 Corn 605 628 1/2 $2,350.00
04/29/08 Long 1 OCT 08 Live Cattle 103.850 107.050 $1,280.00
04/30/08 Long 1 OCT 08 Live Cattle 104.350 107.050 $1,080.00
05/08/08 Long 1 OCT 08 Live Cattle 105.350 107.050 $680.00
05/09/08 Long 1 OCT 08 Live Cattle 106.700 107.050 $140.00
05/09/08 Long 1 JUL 08 Pork Bellies 81.500 80.100 ($560.00)
05/06/08 Long 1 JUL 08 Natural Gas (e-miNY) 11.480 11.715 $587.50
Net Profit/Loss On Open Positions:$5,557.50

Account Balances
Current Cash Balance$113,268.09
Open Trade Equity$5,557.50
Total Equity$118,825.59
Long Option Value$0.00
Short Option Value$0.00
Net Liquidating Value$118,825.59

Cashed out: $10,000.00
Total value: $128,825.59

Weekly return: 3.8%
YTD return: 66.2%

***BTW, I usually "cash out" money just to pay taxes. So total value is all pre-tax. Going forward, I'll be cashing out to pay for rent and beer also.

Thursday, May 08, 2008 Are We Running Out of Food?

Full article

In vintage Mises fashion, Kel Kelly points out that government is the root problem here, not the solution. Amen!

Wednesday, May 07, 2008

DailyWealth: Hog and Cattle Prices Must Rise

A story we're continuing to follow very closely here - high grain prices should increase meat prices.

Dollar rally extends

The dollar rally continues today, on the back of comments by a Fed Head mentioning inflation, and hinting at a potential rate increase in the cards.

I'm filing this one in the category of "I'll believe it when I see it". Personally I wouldn't mind seeing the rally continue, just sweetening the entry prices for when we take the other side of this trade again.

Tuesday, May 06, 2008

Video: Jim Rogers on the current economic situation

Jim Rogers on CNBC yesterday, with everyone's favorite Money Honey, Maria Bartiromo.

Thanks Toby for the find on this one.

Kevin Kerr: The Food Crisis, A First-Hand Report

Same story we've been following here. A nice rally in the grains today, and a little bit of life in the softs as well.

Can corn continue to break out from here? It's been rangebound for the past couple of months - I keep thinking that fundamentals will eventually prevail and push corn past the $7 mark.

In a "close your eyes and buy" trade, I picked up a mini Nat Gas contract this morning. I've been itching to buy it since it crossed the $8 mark, but lacked the testicular fortitude. I hate the volatility of Nat Gas, but no doubt which way the trend is going.

Also keeping a close eye on the Yen and Swiss Franc here. Both appear cheap, but could head lower as long as the "good times" remain on Wall St. When the next leg of the bear market hits, I expect these two to shoot up.

JP Morgan exec: No near end to financial crisis

This beauty sure slipped under the radar. Maybe all is not right with the world again, just yet?

Monday, May 05, 2008

Buffett Expects Weak Dollar to Continue

Over the weekend, Warren Buffet commented if he "landed from Mars today with a billion of Mars dollars, or whatever they call them on Mars, and I was thinking about where to put my money,'' he wouldn't put it all in the U.S. currency.

Full article on Bloomberg

Sunday, May 04, 2008

Weekly Positions Update - 5/4/08

Better to be lucky than good - my accidental rice short on my exit ended up being a very nice trade. Looking back I covered too early, but oh well...lucky entry anyway, I was scared of being too greedy.

Not much doing now - commodities are pretty much experiencing a correction across the board. Yen and Swiss Franc are back in the tank. We'll have some good buying opps when the next leg up resumes, but best to keep everything light for right now.

Corn and meat are my two favorites - it looks like some serious supply issues will be shaping up soon in the meats, due to the high cost of the grains.

Open Positions
Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss
04/15/08 Long 2 JUL 08 Corn 605 614 $900.00
04/29/08 Long 1 OCT 08 Live Cattle 103.850 104.475 $250.00
04/30/08 Long 1 OCT 08 Live Cattle 104.350 104.475 $50.00
Net Profit/Loss On Open Positions: $1,200.00

Account Balances
Current Cash Balance $113,330.67
Open Trade Equity $1,200.00
Total Equity $114,530.67
Long Option Value $0.00
Short Option Value $0.00
Net Liquidating Value $114,530.67

Cashed out: $10,000.00
Total value: $124,530.67

Weekly return: 4.5%
YTD return: 60.5%

***BTW, I usually "cash out" money just to pay taxes. So total value is all pre-tax. Going forward, I'll be cashing out to pay for rent and beer also.

Why the economoy is worse than we know

In his recent article in Harper's Magazine, Kevin Phillips takes a good hard look at government economic numbers (a la John Williams) and concludes that - surprise, surprise - the numbers are skewed to serve political goals.

This is not news to many readers, but this piece is still worth a review, as Kevin paints a clear story about the history of gov't tinkering in our favorite economic stats.

Bottom line is that keeping an eye on the "real" picture, rather than the picture our gov't paints for us, gives us a huge advantage in our trading. I believe that sadly, your average investor believes, in large part, what the gov't tells them. And that's why your average investor doesn't make any money.

Friday, May 02, 2008

GoldMoney: A 4-Month Review

Naturally, you'd expect a guy who runs a site called GoldMoney to be bullish on the yellow relic. But James Turk is a sharp guy and his latest commentary is worth reading.

Bottom line is that the bull market in gold cannot be over, because nothing has changed fundamentally.

Dollar, Carry Trade Thoughts from Chuck Butler

A couple of good ones from Chuck in today's Daily Pfennig:

Well... How about that U.S. dollar? That's some currency Rudy! Why, look at it rallying against the euro and other currencies as if it's on a mission from God! It looks as if the U.S. has turned things around... The Deficit no longer needs to be financed with over $2 Billion a day in foreign investment... Interest rates are where they need to be to fight this soaring inflation... The Government has stopped spending wildly, and the Budget is balanced... The mortgage lenders have recovered all of their losses... There is no longer a credit crunch... And finally, the war is the Middle East is over...

But Wait! Unless I pulled a Rip Van Winkle and slept through all of that... These things haven't happened, nor do they look as though they might begin to happen any time soon! So, what the heck has the dollar bulls dancing in the streets swinging a mighty hammer?

And on the carry trades:

The U.S. stock market has been on a feeding frenzy since the rate cut on Wednesday... All this euphoria in stocks has the Carry Trade going great guns once again... This is being reflected in the price of yen and Swiss francs... I just don't see how this can continue to go on and on and on... The Carry Trade has longer lasting power than the Energizer Bunny! But one day, it will all come crashing down like a house of cards... At least that's my opinion...

Thursday, May 01, 2008

Any news on cocoa?

Big drop today - I can't find any news to support.

Best I can find is that the recent rally was based upon supply concerns, and I'm sure spec buying no doubt.

I just covered my position here - no point hanging on after a big gap down like this, I think.

CNN: Long Jim Rogers video

The video interview runs over 20 minutes - I can't get enough of listening to Jim. Even though he repeats his investing themes, those themes will almost always make you big $$$, so a good refresher course can never hurt.

At the 5:40 mark of the third video, Jim mentions what he's buying now:
  • Agriculture
  • Chinese Renminbi
  • Chinese shares (focus on tourism, agriculture, clean water, power generation)
  • Japanese Yen
With agriculture and the "Redback" qualifying as the safest investments in his book.

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